In a matter that has been in dispute for nearly a decade, the Federal Energy Regulatory Commission (FERC) in December 2020 upheld its two previous decisions that, in 2008, one of BP’s traders engaged in market manipulation in the natural gas market in Texas. Brattle Principal Dr. Rosa M. Abrantes-Metz served as a testifying expert in economics on behalf of FERC, and her findings were cited repeatedly in the Commission’s latest administrative order, as well as in the 2015 order and the 2016 appeal decision.
In 2010, the Commission first informed BP of its market manipulation suspicions, and issued an Order to Show Cause on August 5, 2013. FERC enforcement staff alleged that one of BP’s traders had manipulated the next-day, fixed-price gas market at the Houston Ship Channel (HSC) from September to November 2008. FERC claimed that the trader on BP’s Southeast Gulf Texas team had engaged in trading and transportation patterns for physical natural gas at the HSC that were designed to deflate prices and benefit the trader’s derivatives positions. BP argued that there was no direct evidence of market manipulation, and that there was no material profit to be gained by the Texas team as a result of its trading behavior.
FERC retained Dr. Abrantes-Metz to analyze BP’s trading behavior during the alleged period of manipulation (the “Investigative Period”) and form an opinion on both liability and price artificiality of the alleged manipulation. Both as a former economist at the FTC and in private practice, Dr. Abrantes-Metz has worked on multiple investigations related to conspiracies and manipulations in oil and other commodities, and has developed screens to detect illegal behavior such as collusion, manipulation, and fraud, having used them both for plaintiffs and defendants. She is widely recognized for her work flagging Libor rigging in 2008, among other such activity. Dr. Abrantes-Metz testified that the Texas team’s trading behavior during the Investigative Period was consistent with an effort to directly manipulate prices, which also influenced other market participants’ views, and further reinforced the artificial downward pressure on the HSC Gas Daily index. Changes in trading patterns included, among others, heavier selling early in the trading day, shifting buying to later in the trading day, selling at artificially low prices compared to the rest of the market, and uneconomically transporting gas into the HSC to artificially increase local supply and depress prices.
FERC issued its administrative order Opinion No. 549-A on December 17, 2020, addressing arguments raised on rehearing, and once again reaffirming the previous two decisions. The Opinion focused at length on Dr. Abrantes-Metz’s multiple economic analyses of BP’s trading conduct, as in the previous two decisions. The ruling orders BP to pay $20.16 million in civil penalties and disgorge $207,169 of ill-gotten profits. The matter is expected to be appealed to the Fifth Circuit; this appeal had been stayed for over four years pending the outcome of the administrative proceedings before FERC.
Selected Excerpts from FERC Orders
“Having determined that Abrantes-Metz’s testimony and evidence was admissible under Rule 509, the ALJ then determined that the substance of Abrantes-Metz’s testimony and evidence deserved significant weight in light of the record. BP’s attacks on Abrantes-Metz’s qualifications, which the ID considered sufficient to qualify her testimony and evidence for admission in this proceeding, provide no basis for the Commission to reject the ALJ’s determinations regarding the weight and credibility afforded to Abrantes-Metz and her testimony and evidence.”
“As Dr. Abrantes-Metz concluded, all four of these trading behaviors contributed to the overall suppression of HSC prices and artificiality of the HSC Gas Daily index… Dr. Abrantes-Metz[‘s] testimony is given significant weight.”
“As Dr. Abrantes-Metz testified, the confluence of factors in this case shows that there was no legitimate reason to explain the trading and that there was manipulation.”